What Are Pro Forma Financial Statements?

Keep in mind that the American Institute of Certified Public Accountants (AICPA), and the Securities and Exchange Commission (SEC) both have guidelines for creating pro forma statements. Instead management uses it to analyze what would happen to current inflows and outflows of cash if a business deal happened in the future. This type of pro forma projection takes into account all of your financials for the fiscal year up until the present time, then adds projected outcomes for the remainder of the year. That can help you show investors or partners what business finances could look like by the end of the fiscal year. Most pro forma invoices provide the buyer with a product description, selling price, and an estimate of any commissions or fees. Although the pro forma invoice may be subject to change, it provides all transaction details so that no charges come as a surprise once the transaction is final.

• Here’s a historical example of a pro forma income statement, courtesy of Tesla Inc.’s (TSLA) unaudited pro forma condensed and consolidated income statement for the year ended Dec. 31, 2016.
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• Thus, it is essential for decision-makers, such as investors and analysts, to be aware of the potential for misrepresentation in pro forma disclosures and to remain vigilant in their research and due diligence.
• In addition, it’s easier to prove sustainability by presenting well-researched pro forma statements to a would-be stakeholder.

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Mastering Pro Forma Financial Statements: The Three You Need

A pro forma financial statement is a report prepared base on estimates, assumptions, or projections. In other words, it’s not an official GAAP statement issued to investors and creditors to relay information about past company performance. Instead, it’s a tool created by management to help project future performance and plan future events.

The difference lies in the assumptions and adjustments made about various inputs, while the format and calculations remain the same. There are several other types of templates that could be helpful for a business other than the ones already presented here. There are many different periods that could be covered, as well as the different purposes for the pro forma financial statements. Most businesses have limited resources, and pro forma reports can help you make better decisions with what you have. Pro forma is a Latin term that roughly translates to “as a matter of form,” and is most often used to describe a document that is based on financial assumptions or projections, such as a pro forma balance sheet.

FAQs about the pro forma statements

Understanding pro forma financial statements involves various components, such as income statements, balance sheets, and statements of cash flow. Each of these elements provides a financial snapshot of a company’s hypothetical future performance. By combining these components, it is possible to create a comprehensive financial projection that can help inform strategic decisions and evaluate the potential return on investment. For this reason, professionals typically turn to forecasts and financial projections to guide their plans and answer critical “what if” questions.

Pro forma income statements provide an important benchmark or budget for operating a business throughout the year. For example, they can determine whether expenses can be expected to run higher in the first quarter of the year than in the second. They can also determine whether sales can be expected to run above average in, let’s say, June.

Purpose of a Pro Forma Invoice

We estimate that we will need to raise $5 million in funding in order to expand our operations into new markets. We plan to use this funding to invest in research and development, as well as to cover the costs of marketing and new product launches. There are both benefits and downsides to the assumption structure that pro forma is built upon. Management uses these reports regularly in the course of business and only occasionally issues them to outside investors and creditors.

By providing projections based on different scenarios, businesses can identify and mitigate potential financial risks. With Accracy, you get a crystal clear image of your financial history so you can focus on planning your future. We’re America’s largest bookkeeping service helping thousands of business owners better understand the financial health of their operations so they can keep focused on growth and planning. When it comes time to create a pro forma statement, you have reliable numbers and reports to get started. Finally, with the pro forma income statement and balance sheet complete, we can now knock out the cash flow statement.

A proforma invoice sample:

The pro forma statements serve as a tool to demonstrate the feasibility and profitability of proposed projects or business ventures. The pro forma balance sheet, on the other hand, predicts future assets, liabilities, and equity. It aids in assessing the potential proforma example financial stability of a business under different scenarios. By projecting the financial position at a specific point in time, companies can anticipate capital needs, evaluate solvency, and make strategic decisions regarding asset allocation and debt management.